Drawing on the insights and experiences of leaders across nine industry segments, the research is the largest UK-focused insurance report of its kind and, at first glance, the outlook for UK businesses looks decidedly, though perhaps unsurprisingly, bleak. Breaking down the most pressing risks facing UK businesses, Aviva mapped out the following concerns:
In a panel session chaired by Jane Poole, CFO, Aviva UK&I General Insurance, Winslow joined Paul Wilson, policy director at the Federation of Small Businesses, and Rodney Bonnard, UK insurance leader at EY, to review the changing risk profile of UK businesses. Amid discussions around the key takeaways of the report, two underlying factors became increasingly evident – the interconnectivity of the risks concerning UK businesses, and the disconnect between concern and protection.
“If the last few years have taught us anything it’s that businesses need to be prepared for the unexpected,” Winslow said. “And as the report says, the sheer breadth of issues businesses face, as well as the interconnected nature of those issues is, I think, the key thing that businesses need to face into to trade successfully. One way through that, with my insurance lens on, is proactive and holistic risk management – what is the plan for the plan?”
Among the findings of the Risk Insights Report, Aviva revealed that only 14% of small businesses have business continuity plans in place. So, very few of these businesses have really thought about the impact and consequences of these risks, he said, as well as how they play together. What they need to be doing is actively considering these and working with brokers and insurers to ensure they have the right response plans and coverage in place to continue to trade effectively in a fast-changing and tumultuous risk environment.
Following on from this, Poole emphasised the particularly concerning statistic that Aviva estimates that as much as 5% of UK businesses are likely to be underinsured. Underinsurance is a true measure of the gap between concern and protection – and she turned to Winslow for his thoughts on how the economic backdrop is impacting the insurance needs of businesses.
In a tight economic environment, he said, underinsurance is the risk that Aviva’s team have seen emerge and re-emerge over many cycles. The report specifically references that many businesses aren’t inflating their sums insured i.e. their inventory stock, machinery and all the other things that would need replacing in line with inflationary increases should the worst come to pass.
“Now, there’s an advantage to businesses not doing that, because clearly, they’ll pay less,” he said. “But there’s a disadvantage in that if that’s not a conscious choice, in the event of one of those perils coming to pass and a claim being made, then the payout won’t cover effectively what’s needed to get them back working, get them back trading and get them back on their feet.”
Winslow noted that the same is happening around the business interruption piece, with disruptions in the supply chain making it very hard for businesses to get their hands on parts and inventory as quickly as they might have previously. Aviva understands how important it is to be conscious of how tight trading conditions are, he said, as clearly businesses can’t automatically afford to pay more year-on-year-on-year.
“So, [it’s about] making a really conscious choice,” he said. “I think this is where the broker comes in, on having that conversation. We encourage businesses to sit down with their broker to talk about what’s on their mind, what they’re worried about, and then create a programme that effectively responds both from a cost and a coverage perspective to those concerns.”
From Aviva’s perspective, offering the right tools and data to brokers to empower to have proactive discussions with the clients around underinsurance is critical, he said. Claims happen in insurance and the last thing the profession wants to happen is the development of a “mismatch between expectation and reality” among insureds.
Touching on the level of awareness he sees among SMEs about this concern, the FSB’s Wilson highlighted that there is some awareness but that all too often being underinsured is not a conscious decision being made by small business leaders. The FSB did a report on insurance last year which found that one of the ways firms have reacted to rising premiums is just by reducing their insurance levels.
“Now if that’s after a conversation with a broker, and they get the decision that they’re making, and they’re balancing it against other things they could be spending their money on then fine,” he said. “It’s not ideal, but it’s fine and potentially a good risk-based decision. However, if they’re not sure exactly what their coverage is, and if they’re not aware they’re underinsured, then that is concerning. Because then, if and when something goes wrong, that will be more difficult to deal with.”
Another issue around underinsurance, noted EY’s Bonnard, is that too many people think of insurance just in terms of bricks-and-mortar business interruption. The reality, he said, is that the actual risk landscape has shifted dramatically and is no longer just based on physical risks, with concerns such as cyber presenting a looming threat.
“If you look at all the aspects of the Ukraine war and just the number of hacks that are happening, it’s just unbelievably ubiquitous,” he said. “A lot of the value of companies isn’t just in their bricks and mortar, it’s also in their reputation and it’s in the data they hold for the customers that they manage.”
Companies need to register that their insurance decisions are not just about choosing whether or not to cover their physical premises, he said, but they also need to consider the range of intangible assets that also require protection. On that point, Winslow added the report’s finding that large corporates tended to be better at thinking about such risks – with a huge percentage of small businesses unaware that cyber insurance even exists.
“So again, you come down to businesses needing to make consciously aware choices about what they’re covering and what they’re not,” he said. “And there’s a real awareness and understanding gap [among some SMEs].”
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